Relief to Burberry: Delhi HC upholds RPM Method for Distributors Reselling AE Products Without Modification [Read Order]

The Delhi High Court granted relief to Burberry India and upheld the RPM method for the distributors reselling the AE products without modifications.

The assessee, incorporated in January 2010, is a joint venture between Burberry International Holdings Ltd. (UK) and Genesis Colours Private Limited (India) and is engaged in the trading of imported luxury goods under the "Burberry" trademark.

Operating seven retail outlets across major Indian cities, the assessee filed its return of income for AY 2012-13, declaring a loss of ₹1.8 crore. The Assessing Officer (AO) referred the case to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) under Section 92CA(3) of the Income Tax Act.

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The assessee employed the Comparable Uncontrolled Price (CUP) method, corroborated by the Resale Price Method (RPM), as the Most Appropriate Method (MAM) for determining ALP. However, the TPO rejected both methods, instead adopting the Transactional Net Margin Method (TNMM) with operating profit/operating cost (OP/OC) as the Profit Level Indicator (PLI).

The TPO selected comparable entities, rejecting two of the assessee’s proposed comparables while adding four others, and made an adjustment of ₹6.94 crore to the income. The AO incorporated this adjustment in the draft assessment order.

The assessee filed objections with the DRP, challenging the rejection of RPM and CUP, inclusion of certain comparables, and the lack of working capital and lease rent adjustments. While the DRP directed the TPO to make necessary adjustments and restrict the transfer pricing adjustment to international transactions, the TPO upheld TNMM as the MAM. The AO subsequently issued a final assessment order incorporating the DRP's directions.

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The tribunal relied on decision in Nokia India (P) Ltd v. Dy CIT of Delhi High Court, where it was that RPM is the most appropriate method for benchmarking the international transaction in question.

The primary issue in this case was whether the Tribunal’s conclusion that the Resale Price Method (RPM) was the Most Appropriate Method (MAM) for benchmarking the assessee’s international transactions was erroneous. The assessee, engaged in importing and retailing luxury goods under the "Burberry" brand, did not add value to the goods and sold them in the same condition. It argued that RPM was appropriate for benchmarking as it relied on gross profit margins of comparable entities engaged in similar resale activities, consistent with OECD Guidelines and ICAI Guidance Notes.

The Transfer Pricing Officer (TPO) had rejected RPM in favor of the Transactional Net Margin Method (TNMM), citing the assessee’s ₹5.44 crore AMP expenses as substantial. The DRP upheld the TPO's decision, concluding that the assessee was not a "routine distributor."

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However, the Tribunal disagreed, noting that the AMP expenses were comparable to those of similar entities. It emphasized that the assessee’s functional profile as a routine reseller was undisputed.

The Tribunal relied on precedents like L’Oreal India (P) Ltd., Matrix Cellular International Services (P) Ltd., and Fujitsu India Private Ltd. to affirm that RPM was the MAM for cases involving resale of goods without value addition.

The bench of Justices Vibhu Bakhru and Swarana Kanta Sharma upheld the Tribunal’s decision, dismissing the Revenue's appeal. It found no merit in the argument that AMP expenses disqualified the assessee as a routine distributor. The Court concluded that no substantial question of law arose and affirmed that the Tribunal’s findings were justified in the provided facts. The appeal was accordingly dismissed.

To Read the full text of the Order CLICK HERE

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